Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 20 March 2026
Good afternoon. Today, we have made the decision to cut the key rate to 15% per annum.
As we expected, price growth has slowed down, following its temporary acceleration in January. The response of inflation expectations to the increases in VAT and fees has been moderate. Consumer demand is cooling. The economy is approaching its balanced growth path. This has enabled us to continue easing our monetary policy stance. However, there are two important factors of uncertainty which will influence our future decisions. These are changes in the external environment and adjustments to fiscal policy parameters. This calls for a cautious and prudent approach to decision-making in the future.
I would now dwell on the reasons behind our today’s decision.
Firstly, inflation.
In February, current price growth rates declined back to the levels of 2025 H2. This confirms our preliminary estimates that higher VAT, excise duties and fees were passed on to prices mainly in the first few weeks of 2026.
What is essential is that measures of underlying inflation also indicate moderate price pressure in February. As we noted earlier, it is impossible to completely strip out the effect of increased VAT from the calculation of most measures of underlying inflation. Therefore, February is more illustrative of underlying price growth than January. Overall, according to our estimates, current underlying inflation did not speed up at the beginning of the year and stays in the range of 4–5% in annualised terms.
The impact of higher taxes on households’ and businesses’ inflation expectations has turned out to be short-lived. In February–March, inflation expectations returned to last year’s averages. However, despite the notable slowdown in actual price growth over the previous year, inflation expectations remain elevated, which is a matter of concern to us. High inflation expectations are one of the reasons why we need to be cautious when cutting the key rate.
Secondly, the economy.
High-frequency data for the beginning of the year demonstrate cooling in domestic demand, especially consumer activity. As we expected, an additional contributor to this was expensive purchases partly rescheduled for the end of last year when people were seeking to buy some goods before the increases in VAT and the vehicle-recycling fee. Another indicator of moderate demand dynamics in 2026 Q1 is current estimates in business surveys. A considerable decrease in estimates at the beginning of the year was reported by small and micro businesses. In the next few months, as the effects of intertemporal redistribution of purchases dissipate, we will be able to assess the sustainability and magnitude of the deceleration in consumption growth more accurately.
Developments in the labour market are consistent with the earlier trends. Unemployment stays at its record lows. Nevertheless, surveys show that staff shortages have been easing gradually, with companies’ recruitment and wage indexation plans moderating yet further.
Fixed capital investment edged down as of the end of 2025, while staying close to the record highs achieved in recent years. Over 2025, fixed capital investment totalled ₽42.5 trillion, which is almost one-fourth more than in 2021, if assessed in real terms, that is, adjusted for accumulated inflation. However, the situation is still uneven across industries. Investment activity has remained high primarily in manufacturing and services, including owing to government support and import substitution. Investment plans for this year are more moderate. Nonetheless, business surveys show that there are more companies planning to build up rather than reduce their investment and production capacities in 2026.
According to our estimates, the economy’s production capacities have continued to grow and, given the currently observed moderate dynamics of demand, it will align with the supply of goods and services in the next few months.
Thirdly, monetary conditions.
They have eased somewhat, while remaining tight. Interest rates in the main financial market segments have continued to decline gradually, driven by the earlier key rate decisions.
Credit growth stays moderate. A temporary acceleration in retail lending, which was attributed to heightened demand before the change in subsidised mortgage terms, has been expectedly followed by a cooling. Corporate lending has returned to moderate growth rates after the seasonal effects of budget spending dissipated.
Concurrently, the propensity to save remains high compared to historical levels, while declining slightly. Its decrease is natural amid monetary easing and is very smooth. The growth rate of monetary indicators is currently close to the level observed over the period of sustainably low inflation.
Now, I would like to speak of external conditions.
They have been in the limelight in recent weeks. The situation in the Middle East has been considerably influencing global commodity markets. The resulting effect on the Russian economy will depend on the duration and scale of these geopolitical events.
On the one hand, in the short term, the domestic economy will be mostly influenced through higher prices for crude oil and other Russian exports. This is a factor supporting export earnings and the ruble. On the other hand, in the longer run, the situation in the Middle East might adversely affect both global demand and investment growth prospects, accelerate inflation in economies importing energy commodities, and disrupt supply chains. Actually, this is yet another supply shock that will influence costs worldwide and, to a certain extent, pass through to prices in the Russian market. Additionally, problems in logistics may have a negative effect on the quantities of Russian exports.
So far, it would be premature to give any estimates of the overall effects of external events on the Russian economy.
The ruble has weakened over the past few weeks, but its exchange rate is hovering in the range of the previous year. It is too early to speak of a clear trend forming. The exchange rate was not a determinant factor for our today’s decision.
I will now speak of risks.
As before, we consider that proinflationary risks prevail.
The risks of second-round effects of the increases in VAT, excise duties, and fees, including of their impact on inflation expectations, have subsided. However, the estimates of future inflation, especially among households, remain elevated. Their decrease might be additionally slowed down by adverse external developments. Risks associated with staff shortages persist.
As I have already noted, the external environment is a factor of rising uncertainty.
Fiscal policy is another important factor having a notable impact on room for cutting the key rate. Changes in fiscal policy parameters relative to the earlier announced ones might increase or limit room for lowering the key rate. In view of this, all the parameters are critical, including the configuration of the fiscal rule, the size of the budget deficit, taking into account parameters of regional budgets, and the sources of financing the deficit. As we said earlier, the decline in the cut-off oil price provided for by the fiscal rule should lead to a commensurate revision of spending, which is necessary to ensure a balanced federal budget. If this happens, the effect will be disinflationary. By contrast, if changes in the fiscal rule parameters are not accompanied by adjustments to budget expenditures but only entail higher borrowings, this will require tighter monetary policy, all else being equal.
Winding up, I would like to comment on our future decisions.
Considering the dynamics of inflation and inflation expectations and the cooling in domestic demand, today, we have made the decision to cut the key rate. However, the uncertainty associated with the external environment and future fiscal policy parameters has notably increased. We might need time to comprehend how the situation will be unfolding. At the upcoming meetings, we will assess the need for a further key rate cut, but this will not be done as a matter of course.
It is our well-balanced and consistent monetary policy that has formed the prerequisites for returning inflation to the target. We will move forward in a smooth and balanced manner so as to bring inflation down to 4% and stabilise it sustainably close to this level further on.
Thank you for your attention.
Q&A for the Media
QUESTION from TASS:
Would you tell us which options as regards the key rate have been on the table, and which signal options?
ELVIRA NABIULLINA:
There was a broad consensus over a 50 basis point reduction. That said, certain members favoured leaving the rate unchanged, while others proposed a cut of 100 basis points.
QUESTION from Interfax:
Is the debate over a change in the parameters of the fiscal rule and lowering the baseline oil price ongoing, or have these changes, particularly the baseline price, been put on hold, as a result of heightened uncertainty and the lack of clarity on the key assumption – the oil price? Do you still believe that the ruble’s exchange rate is driven by underlying factors? Do you not think that the weaker ruble has mostly come as a result of foreign currency sales being suspended by the Finance Ministry?
ELVIRA NABIULLINA:
The government has yet to finalise the parameters of the fiscal rule. I agree with your point that there is greater uncertainty around the oil price. However, it is important that the parameters of the fiscal rule be defined based on a conservative estimate of the long-term oil price. With the discussion ongoing, it is imperative that the fiscal rule and the cut-off price be calibrated to deliver a long-term balance of the budget. This is a critical factor for our key rate decisions.
As regards the impact on the exchange rate, the recent weakening of the ruble is a result of two factors which I cannot call ‘underlying’. First, the oil price was very low in January and February. We estimate that the lag in the change in oil prices translating into foreign currency earnings is about two months, and this is why we are currently seeing the effects of the low oil price back in January.
The second is indeed the suspension of the fiscal rule. In a normal case, a drop in the real oil price below the baseline assumption triggers sales of foreign currency from the National Wealth Fund to make up the shortfall. That did not come to pass. However, with the export price of oil now higher, we will watch what happens to fiscal rule-based operations and whether they resume or remain on hold.
ALEXEY ZABOTKIN:
Recent movements in the exchange rate clearly show the importance of the fiscal rule in terms of protecting the economy against oil price volatility.
QUESTION from Igor Shimko’s media project:
My question relates to external shocks. You rightly said we fear that there is much uncertainty ahead. Are your team already modelling the consequences of external shocks, and if so, under which scenario?
ELVIRA NABIULLINA:
Modelling is hard at present. The effects depend heavily on how long the situation lasts and its magnitude. Instead, we are analysing the potential channels through which we are likely to be affected, and they paint a mixed picture.
In the short term, we could see support for export revenues and by extension the ruble. But in the longer run – should the consequences of the shocks prove consequential for the global economy, as may well be the case – we could see the opposite effect, with a weakening in demand for our exports, which would send inflation higher.
However, we took this into account today in making our decision as a factor of higher uncertainty, and it is still rather difficult to calibrate the uncertainty. We will be watching how things unfold.
QUESTION from GorodChe (Cherepovets):
The Bank of Russia has steadily lowered the key rate, the last time in February and for the second time this year, today. Can we expect the rates on car, consumer and mortgage loans to go down gradually?
ELVIRA NABIULLINA:
We have been reducing the key rate since the middle of last year, and the total decline has been six percentage points since then. Importantly, the market rates are generally tracking, if not automatically, the downward trend in the key rate. For example, market mortgage rates are down by almost six percentage points, by almost as much as the key rate itself.
The rates on consumer and car loans are also declining, although they are still relatively high and uneven. Why is that? In the case of car loans, there are many subsidised lending programmes financed jointly by banks and carmakers, rather than the state. These programmes expand and contract, affecting the rates.
That said, I believe there is a clear downward trend in the rates, and this is a consequence of lower inflation. Further decline in market rates will depend on a contraction in actual inflation and inflation expectations, that is, how soon households can be reassured that the high inflation is only transitory. I repeat every time that it is more than actual inflation: it is inflation expectations that shape the level and direction of interest rates.
How does this work? Consider deposits. If households expect high inflation, deposit rates should capture their expectations. Inflation expectations for one year ahead are now 13% or higher. Deposit rates should be higher than that for people to have an incentive and be inclined to save. Clearly, loan rates, including on consumer loans, which you have asked about, cannot be lower than deposit rates because the interest on loans must make up the interest costs that banks incur on deposits. This is why the deceleration of inflation and a drop in market rates are both gradual processes which are largely linked to lower household expectations. Let me stress that we remain concerned about persistently high household inflation expectations.
QUESTION from the InvestFuture project:
You have already mentioned the impact of external uncertainty originating from the Middle East. Could you elaborate on how oil prices are influencing monetary policy? How do you factor in the recent surge in prices for crude and also for other export commodities?
ELVIRA NABIULLINA:
Oil prices do influence our monetary policy decisions, but they are not the only factor and not a standalone factor, and we cannot isolate them from other variables. We consider everything together. This is where we should remember the fiscal rule. If the oil price is above the baseline, cut-off, price, most of the excess goes to the National Wealth Fund. Undoubtedly, there remains an effect, given that exporters sell more of their foreign currency earnings. But the fiscal rule largely neutralises that influence, thus stabilising both the economy and the foreign exchange market, as Mr Zabotkin explained.
ALEXEY ZABOTKIN:
Everything about the fiscal rule has already been said, and it is true that it works to stabilise impacts on the economy, the exchange rate and monetary policy when oil prices deviate upwards or downwards from the baseline price. That is how the fiscal rule works. It is much easier for us to conduct monetary policy with a fiscal rule operating in a predictable, algorithm-like fashion.
Now on to your question about other Russian exports. Their price trends have been quite mixed over the past few weeks, and we are monitoring them. By the time of our April meeting, we will seek to have a better understanding of how the situation is unfolding, particularly the scale and duration of the effects coming as a result of the shipping flow disruptions in the Strait of Hormuz. Those shipping disruptions affect a very significant portion of global production chains, many more than just those for oil and gas.
QUESTION from RBC:
You said that a weaker ruble is a driver of inflation, but you have now pointed out that it did not come as a paramount factor for your decision at this meeting. Is our understanding correct that you currently see no weakening of inflation risks? How much would the ruble have to weaken for the Bank of Russia to recognise it as a serious problem, one that would propel the regulator to reconsider its rate decisions and perhaps pause its rate cuts?
ELVIRA NABIULLINA:
The weakening of a national currency is an inflation driver, all other things being equal. What is consequential, however, is the range of the exchange rate fluctuations and the rate assumption in business decisions.
The range of exchange rate fluctuations is the same as last year despite the strong rise in volatility. We have said that our business surveys deal with the assumed level of the exchange rate. We believe that the weakening we have seen is still within the bounds of business expectations, so a further pro-inflation effect is at this stage off the table.
We will watch the situation moving forward, but we do not have a specific exchange rate estimate that would lead us to account for it as an inflation driver. It all depends on the situation I have been talking about as well as other factors, including business expectations.
ALEXEY ZABOTKIN:
A better coordinate system to compare the exchange rate would cover longer periods of time, such as the year-average exchange rate in 2025, for example. That would enable comparisons with periods longer than the last four weeks.
As a reminder, the average ruble to US dollar exchange rate was 83.4 in 2025. It is currently close to 84, which is roughly the same. The average ruble to yuan rate was 11.6 over the previous year, sitting at 12.2 at the moment. That marks a change, but it is a change within the range of normal fluctuations. Doubtless, the extreme values of the fluctuations paint a more dramatic picture. But it is only sustained, persistent, changes in the exchange rate that translate into inflation. As you can see, there are currently no sustainable changes compared to 2025.
QUESTION from RIA Novosti:
Ms Nabiullina, what is the likely effect of the Finance Ministry’s plans for budget sequestration on the key rate path this year?
ELVIRA NABIULLINA:
Fiscal policy changes are still under discussion within the Government. However, what is a key factor for us to consider is not only and not so much changes in fiscal spending but overall budget settings such as budget deficits, changes in the fiscal rule and the cut-off price.
If there is a decline in spending, as you have mentioned, and there is an even stronger decline in revenues, that leads to a rise in the structural budget deficit, which is financed through extra borrowings. If that is the case, it will create further inflationary pressures and call for a higher key rate.
But a situation of declining fiscal spending and an unchanged structural deficit is neutral for the key rate, all other things being equal. A decreasing deficit, conversely, creates room for greater easing of monetary policy.
QUESTION from Orlovskaya Pravda (Oryol):
The Bank of Russia keeps saying that now is not the time for big-ticket purchases, that it is better to wait until the rates and inflation are lower. Yet, with inflation already going down, and interest rates going down on both loans and deposits, is it still not the time to make big-ticket purchases?
ELVIRA NABIULLINA:
It is up to every family to decide to buy or to save depending on its needs, its life cycle and its circumstances. We understand that not every decision can be postponed. The costs that a newborn baby involves are indeed necessary and fully understandable. But in the case of many big-ticket purchases, it is a matter of choice: today or perhaps in one year, and this is where the key rate matters. As you can see, we are reducing the key rate, which means that there will gradually be more incentives to spend. However, households make their own decisions about when and how to make purchases, and this is always up to people.
QUESTION from Reuters:
Going by what is happening outside of Russia, Russia seems to be a key beneficiary of the Middle East crisis, with oil prices rising and sanctions being rolled back. Would you agree?
My second question is about increased demand for the yuan. Does the Bank of Russia have a comment on this, including on FX swaps? Do you perhaps see a need for an increased cap on these instruments?
ELVIRA NABIULLINA:
Let me say it again: in our opinion, the implications of the geopolitical tensions in the Middle East will depend on the duration and scale of the disruptions in supply chains, among other things. That is, the impact is mixed. Yes, there is the effect of higher export revenues. I have said that this effect is to a large extent neutralised by the key rate. It also helps build up funds in the National Wealth Fund, that is, increase the safety cushion. However, we may also face the negative fallout of a drop in demand for Russian commodities. Any conclusions about the cumulative effects, their time lags and the impact of this crisis on the Russian economy would therefore be premature.
As for the increased demand for the yuan, we do not intend to raise the caps.
ALEXEY ZABOTKIN:
Let me remind you that we had similar, even more dramatic, developments in the yuan swap market back in September 2024, but the market overcame it. We just wish to remind everyone that our swap instrument does not mean an obligation on our part to maintain the cost of yuan liquidity at a preset level.
QUESTION from Market Power:
What is the Bank of Russia’s assessment of the current lag in the effects of high oil prices on the ruble rate? I mean the time lag between a change in the oil price and sales of foreign currency revenues.
ELVIRA NABIULLINA:
The lag does exist, and our estimates suggest it is about two months. That is the average. It may be longer or shorter depending on logistics, payments and so on, but the estimate is two months. Therefore, we can now see the consequences of the low oil price in January.
QUESTION from Izvestia:
What is the timeframe for the factor of uncertainty driven by the Middle East conflict to have a stronger impact on monetary policy than now? You said that the effect could be estimated as soon as April, but when is this factor expected to emerge to a greater extent, in your view? Could this trigger a slower pace of rate reduction and make the forecast for the average key rate for 2026 tighten in the medium term?
ELVIRA NABIULLINA:
When the fallout can be assessed depends on the duration of the conflict, but it is unlikely to happen in the next few months unless it is over by then.
As regards the impact on the key rate path, this factor cannot be the key driving force. We consider the dynamics of a number of factors. It is not only external conditions that are changing. I have stressed that adjustments in the parameters of fiscal policy are no less important for us, to say nothing of the dynamics of actual inflation, inflation expectations, and the labour market. We analyse the totality of these factors. Our policy meeting is scheduled for April, and that is when we plan to update our forecast and adjust the key rate path, if needed.
One important note here: external conditions are indeed a really impactful factor, and that drives uncertainty higher. Otherwise, we would probably give more thought to the idea of taking the key rate 1 pp lower.
QUESTION from Gorny Altai:
In the Altai Republic, the role of the tourist sector in the regional economy is crucial. In the Bank of Russia’s view, what impact might today’s decision have on investment activity in the tourism industry and consumer demand on the part of visitors to the region?
ELVIRA NABIULLINA:
Taken in isolation, today’s decision is unlikely to have a significant impact on either investment or consumer demand, but the progressive rate reduction since the middle of last year is already creating more favourable conditions for balanced growth in both consumer demand and investment. Let me remind you that we have cut the key rate by six percentage points since the middle of last year.
However, predictability of business conditions and a predictable return on capital when investors invest their money are essential for investment growth, and this is the case for investment in general and not only for tourism.
Sustainably low inflation is certainly one such factor. Global and national experience shows that predictably low inflation is conducive to investment. As you can see, inflation is declining and is at a five-year low.
Tourism is showing great dynamism in the Altai Republic, as is investment activity in the region. This is evidenced by the higher-than-average rate of investment in both the hotel business and the overall tourist industry, reflecting a change in demand patterns. Given the strong appeal of domestic tourism, we expect continued expansion in the sector moving forward.
QUESTION from Moskovsky Komsomolets:
You have said on several occasions today that the Middle East conflict is bringing much uncertainty for the economy, and that it is too early to estimate its impact on the Russian economy. But perhaps you could elaborate and tell us how long you expect the uncertainty it has triggered to last should the conflict remain unresolved, as we discussed today, and become a frozen conflict – neither war nor peace? Will it be three weeks, one month, or longer? What is the timeframe for you to measure the impact on inflation, for one? Is it possible to specify its implications for inflation rather than its impact on the wider economy? While imports are becoming more costly, more oil and gas revenues are expected to come, and it is clear which [oil and gas] price to assume. Have you estimated this impact in your mathematical models? If so, does it add to inflation pressures or does it ease them? What are its implications for the key rate decision due in April?
ELVIRA NABIULLINA:
I cannot say how long this uncertainty will last, I believe you understand that. However, the question is about when to take the factor into account if the situation continues. At this point in time, this impact cannot be factored in.
If it drags on, we will definitely have to take the effects into account and translate them into parameters, although it will be a challenge given the diverse nature of the trends, pro-inflation and disinflationary. We will watch how the situation evolves. Much depends on which products are affected by the changes in supply chains.
As a general observation, in all probability, it will be a supply shock, and the longer it lasts, the more pronounced the inflationary pressures will be. We will need to take this into account in our monetary policy decisions.
ALEXEY ZABOTKIN:
This is indeed a supply shock for the global economy. If several million barrels a day of oil and a volume of gas are withdrawn from global markets, the operation of a wide range of production chains becomes complicated, sending the costs of final products upwards, including through higher transportation costs for one.
The nature of this shock is completely different. You may remember the strong inflationary pressure that disruptions in global production chains brought in the coronavirus pandemic back in 2021. Similarly, the longer it lasts, the more meaningful the effects, on both the global economy and the national economy, to which monetary policy will have to respond.
QUESTION from NTV Delovye Novosti:
There have been many developments in the world since the last Board meeting. On the positive side, the Oscar ceremony took place late last week, and One Battle After Another took the Best Picture award. The Bank of Russia’s long fight against inflation and the path to the 4% target is now a saga worth not just a film but an entire series. Given the progressive reduction in the key rate, are we closer to a happy ending – the 4% target – or will the [inflation fight] blockbuster have another two seasons?
ELVIRA NABIULLINA:
I feel few people would want to watch two more seasons, and we are certainly not among them. People do not want prices to rise rapidly all the time. However, we believe that our key rate decisions – and we seek to make very cautious and careful decisions – will help put an end to the story of high inflation of the past five years, before the end of the current season.
QUESTION from the Bitkogan project:
Sectoral output was down markedly in January, and the regulator’s survey data also suggest a decline in business activity. In this regard, what is the Bank of Russia's view of this data? Do we face a sustainable trend that calls for a review of the GDP forecast, or are these temporary difficulties?
ELVIRA NABIULLINA:
It is probably too early to speak of the sustainability of the trend. New data is due by the April meeting, including quarterly breakdowns for last year, which is essential to the drawing of conclusions about emerging economic trends.
Flash estimates from Rosstat show that economic activity in the first quarter of 2026 is indeed lower than we forecast. However, this also comes as a result of last year’s high base and the known seasonal factor (we had fewer working days). Incidentally, weather conditions also mattered: the cold winter slowed the volume of construction. Also, household consumption turned downwards after an acceleration late last year – a factor we always mention, that many people wanted to buy non-food goods in advance.
As for other high-frequency indicators besides Rosstat data, both the PMI and our Business Climate Index lay bare weak and uneven growth across sectors. Speaking of the forecast, we are still on track to deliver 0.5–1.5%. An update is due in April. We will monitor the incoming data and make adjustments if necessary.
QUESTION from Delovoy Kvartal (Novosibirsk):
The Novosibirsk region is seeing a decline in property prices, just like every other region, I suspect. The market is being flooded with flats that were bought using preferential mortgage loans. This is true of both housing to rent and existing home sales. Market participants view this as a negative trend. People cannot buy existing homes since they do not have the money, but there are no preferential loans for second-hand homes. We know the regulator’s attitude to large-scale preferential programmes. While this situation reflects the Bank of Russia’s concerns, what could, in your opinion, help the secondary property market? Perhaps the existing Family Mortgage should be expanded to cover secondary homes?
ELVIRA NABIULLINA:
In and of itself, the Family Mortgage has been expanded to cover secondary homes in cities where there are few new-builds. The key enabler of growth in the mortgage market is lower inflation and lower market rates. If I correctly understand the problem you describe, it was universally available subsidised mortgages that accelerated prices for new-builds, that is, they have grown twofold, so there is a gap between them and existing homes prices. Now, people are struggling to sell the homes they bought at the time chiefly with preferential mortgages: they cannot sell them at primary market prices. The point is not even that prices are falling. Contrary to that, our statistics suggest that secondary market prices are up slightly, by about 4% – that is, they are not in fact declining. We warned about this problem. Should people who bought costly new-builds with preferential mortgages want to sell their properties, they will have to accept much lower prices because of the price gap between the primary and secondary markets. To be honest, we have yet to see any substantial sales of homes bought with subsidised mortgages. They may emerge in the future, but now is not yet the time. Many of the flats purchased under the subsidised mortgage programmes have yet to be commissioned.
After all, the hope is that the intention of most property buyers who took out subsidised mortgages was not investment but improving their living conditions. This is a situation in which those who pursued investment purposes may find themselves.
You say that people cannot afford secondary homes. However, we have not recorded a decline in secondary market transactions, and they number roughly on the order of previous years. It is true to say that the use of mortgages to finance second-hand homes has decreased slightly, on the back of high market mortgage rates. But the high market mortgage rates are themselves largely a consequence of the large-scale, universally available subsidised programmes.
QUESTION from Expert:
Late last month, reviews of regional consolidated budget sustainability were released by rating agencies, in which many of them highlighted a record consolidated deficit, first. Second, they noted the extensive use of bank loans to cover it in 2025. They cited the limited number of federal budget loans and many other reasons. The amount tripled to ₽700 billion, as I recall. Does the Bank of Russia find this level alarming, at least in terms of the stability of creditors themselves, to say nothing of the record high deficit and that regions will have to pay high interest rates?
ELVIRA NABIULLINA:
It is true that regional deficits have expanded, and we are closely monitoring the developments. But at this stage, it does not cause any concern, and it must be said that it is generally a standard practice to cover budget deficits with borrowings, bank credit or the debt securities that regions issue.
The ₽700 billion you mention is not very much in terms of the impact on lenders, that is on banks. It is under 1% of the banks’ loan portfolio. Our regulation provides for increased risk weights on credit claims on heavily indebted regions, that is, banks take this into account. The regions and municipalities’ ratio of commercial debt to GDP is also a modest 0.6%. That is not the highest mark historically. It was much higher ten years ago. That said, we do need to monitor the dynamics. You are right, the dynamics are very important.
Also, let us remember there are backstops to prevent this debt from entering dangerous territory. There are restrictions in the Budget Code as to the budget deficits and debt of constituent territories in relation to their revenue. Those should also work.
QUESTION from Rossiyskaya Gazeta:
Speaking of unsubsidised mortgages, which key rate would propel unsubsidised mortgages to recover? Are there any trends emerging already? And another question, please. What is a normal rate on an unsubsidised mortgage, according to the Bank of Russia?
ELVIRA NABIULLINA:
I should say that unsubsidised, or market-based, mortgages have not died altogether. They have declined, but they still exist. Even in the first half of last year, when our rates were at their highest, about 10,000 to 20,000 mortgage loans were issued monthly at market rates. The current amount is twice as high. But we are all talking about greater availability of market-based mortgage loans.
What is a normal mortgage rate then? It is the rate that emerges when the economy is in equilibrium, meaning that inflation has stabilised at the target. That sounds like theory. What does it mean in practice? We have already enjoyed a period of affordable market mortgages, a time of sustainable inflation close to 4% for several years. At the time, mortgage rates fell to 9-10%, and even 8% rates were available.
What is important here? Let me remind you that we had no subsidised mortgages at the time, practically none. Back then, according to the data I have from my colleagues, there was only one subsidised mortgage for every 50 market-based mortgages. Today, one market-based mortgage comes with two subsidised mortgages. Subsidised mortgages are essentially driving out market-based mortgages. The more extensive the subsidised programmes are, the more distant a future in which market-based mortgage loans are affordable.
Based on our comparison of this year, last year, and the year 2019, for example, when market-based mortgages expanded, the number of mortgage loans was roughly the same. What changed was the ratio of market-based to subsidised loans. Market-based mortgages were more affordable back then. That is why it is very important to reduce inflation and anchor it at the target level and to limit the subsidised programmes to targeted programmes, seeking to make market-based mortgage loans as affordable as possible.
QUESTION from Nezavisimaya Gazeta:
What are the signs for the Bank of Russia to judge that the period of managed economic deceleration has been long enough and has achieved its objectives, and that it is time to end it?
I also have a clarifying question. Does the Bank of Russia take into account the fact that a cooling economy has its own accumulated inertia, and that it also takes a certain period of time? Is there a Bank of Russia estimate as to how long this inertia may last?
ELVIRA NABIULLINA:
You are absolutely right about the inertia. Inertia is inherent in most economic processes. When the economy moves in one direction and then reverses course, there are inertial processes. We always emphasise that there are lags in our monetary policy effects, so we make decisions based on our forecasts. Forecasts are therefore very important in making decisions and accounting for this inertia.
When can we judge that we have reached a sustainable, balanced growth path? We can say that when we see inflation sustainably settled at 4% – not just touching 4%, but when we see that it has firmly settled at 4%. It may take several quarters, at least for core inflation.
As for our forecast, we assume that economic growth in 2027 will climb above this year’s.
QUESTION from the Anna_finance project:
I have a question following up on the affordability of new-builds for those who are not eligible for the Family Mortgage. We are very pleased that the interest rates are gradually coming down. Also, instalment plans are still sought-after with home buyers. While developers’ use of instalment plans varies, it overall accounts for a significant share of sales. Effective 1 April, there will be a limit in place on the duration of instalment plans for purchases on marketplaces. I was surprised to find out that there is an understanding that this restriction will affect the purchase of new-builds. Could you please explain to us what the future arrangements are? Are instalment plans set to be available to home buyers after 1 April? Is the instalment plan set to be limited to six months?
ELVIRA NABIULLINA:
You said it right when you asked the question: it is all about the instalments available on marketplaces. The restriction will apply only if a flat is bought through an instalment service operator on a marketplace. However, the practice does not exist. Instalment plans for flats are usually completely different, as they are provided by developers, and they are not regulated by law. On the one hand, the upside is that the restrictions you cite do not apply, but on the other hand, the absence of regulation in this area is detrimental, in our view. This gap needs to be closed. Unregulated instalments may seem to be beneficial to people as long as they are allowed to defer payments if they cannot pay outright, but they create additional risks. What kind of risks? We believe there are risks for both individuals and developers.
What are the risks for individuals? Instalments are now offered by developers for a period of six months to two years. What does that mean? It means that the borrower will subsequently take out a mortgage. But what if the borrower cannot? That is possible since no one has verified their borrowing capacity, since there was no bank involved at all. The bank may refuse the mortgage if it cannot confirm creditworthiness. How does the borrower cope with the payments then? That is certainly a serious issue.
However, developers also face risks, since buyers may stop making instalments if they are unable to pay. And that means they need to decide what to do with the flat. In our view, it is very bad that this area is unregulated, and we are therefore working together with the Ministry of Construction to come up with a draft law. The ministry is now finalising it, taking into account our feedback, with the aim of ensuring that instalment plans include the protection of rights, primarily of home buyers.
QUESTION from Frank Media:
We have recently seen a rise in internet blackouts, especially in major cities, with the white list currently including only three banks. That means the list strips out even systemically important credit institutions, to say nothing of other, non-systemically important banks. Is the Bank of Russia satisfied with this situation? Are you in talks with the Ministry of Digital Development and other agencies and banks, and what is the key obstacle now: banks, digital regulators, or something else?
ELVIRA NABIULLINA:
We see this as a rather serious problem. Inclusion on the white list gives a significant competitive advantage. It is certainly against the rules of fair and equal competition. In our opinion, all licensed banks should be on the list. That is our position, and we are discussing it with the regulators.
QUESTION from the Pro.finansy project:
We have heard multiple concerns today over the high cost of market-based mortgage loans. People are genuinely worried because market-based mortgage payments, to be honest, are not comparable with the salaries of even highly qualified employees. The question is: is there even a goal of making market-based mortgage loans affordable for highly qualified employees? And if so, what is the target year by which to deliver this goal?
ELVIRA NABIULLINA:
Why only highly qualified employees? Our objective is to make mortgage loans affordable to a wide range of people, and market-based mortgages widely affordable, regardless of qualification. Let me stress again that the key focus of effort is, in our opinion, reducing inflation and market rates. We have been there before. But I must admit that we should not expect a drastic one-off jump in commercial mortgages the moment inflation touches 4%. Both households and banks need time. Banks need time to be able to issue long-term loans at moderate interest rates. The last time inflation sat at 4% was in 2017, but market-based mortgages did not gain momentum until around 2019, that is, two to three years after inflation settled at the target. We are doing our best to bring inflation to 4%, and this will drive the market rates lower. We hope to see these trends before the end of this year.
ALEXEY ZABOTKIN:
The Governor has already noted that a significant perimeter of subsidised mortgages inevitably leads to a smaller number of unsubsidised mortgages than at the time there were no subsidised mortgages.
QUESTION from Vedomosti:
The Bank of Russia forecast that GDP would expand 1.6% in the first quarter, but analysts estimate that the emerging trajectory, of both GDP and inflation, is likely to be below this forecast. Do you agree? Are we in for a decline in GDP, possibly in annual terms, in the first quarter?
My second question is about external conditions: the Bank of Russia has a risk scenario involving a global crisis. How likely does it seem now?
ELVIRA NABIULLINA:
We will update our GDP growth estimates once we have an adequate set of data, as I have already mentioned. The review is scheduled for April, when we have our policy meeting. We will also update our forecasts for this year.
As regards the chances of the risk scenario, we consider them low.
ALEXEY ZABOTKIN:
Importantly, the actual data which paint the picture of the first quarter do not run counter to projections for 2026 and their ranges. Q1 data may indeed come in slightly lower, in terms of both price growth rates and economic activity, than what the Board of Directors had in mind when it met in December and February, but the data fit within the forecast ranges for 2026: GDP growth of 0.5–1.5% and inflation of 4.5–5.5%, according to the February forecast update.
QUESTION from Rambler:
You have mentioned today that the state may ramp up borrowing to cover the budget deficit. Will this drive OFZ yields higher and make loans more costly for households? How likely is this scenario?
ELVIRA NABIULLINA:
I spoke rather hypothetically on whether a reduction in revenue would come with a lower budget deficit. Indeed, a deficit may be covered by additional borrowings or otherwise, such as by mobilising various revenues. Yields will definitely change depending on the volumes, but it will ultimately be market-driven.
ALEXEY ZABOTKIN:
Additional borrowings reduce the room for growth in market lending. They therefore entail, all else equal, a higher key rate path.
ELVIRA NABIULLINA:
Thank you.